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A suspected Swiss spy arrested in Germany was allegedly surveilling finance investigators involved in the purchase of data CDs on tax cheats in Switzerland, a newspaper reported on Sunday.

German prosecutors said on Friday police had arrested a Swiss man they identified only as Daniel M., 54, who was suspected of espionage activities since early 2012.

Federal police also raided several residential and business premises in and around the banking centre of Frankfurt, they said.

Now Die Welt daily has reported that the man's alleged mission was to identify German tax investigators involved in the purchase of "tax cheat" CDs, which have upset German-Swiss relations in the past.

Several German states have since 2006 paid millions to unknown sources for the CDs, which have listed German citizens' account information with several Swiss and Liechtenstein banks.

Daniel M. was thought to have worked for the Swiss intelligence service NDB in the German finance and banking sector, the report said.

German tax investigators started a major crackdown in 2010 when they got their hands on data CDs with lists of bank account holders in foreign tax havens.

Many of Germany's rich, powerful and famous have as a result had to issue public apologies for stashing away their wealth abroad.

The threat of dawn raids compelled thousands of other German tax cheats to come forward and report their accounts abroad, and pay back taxes on the interest earned plus a fine.